Scaling brings increased financial resources and enhanced industry reputation. This allows companies to attract top-tier talent by offering competitive compensation packages. Additionally, employees are more likely to join organisations that have a strong brand presence and proven success.

As scale-ups generate consistent revenue and growth in their core business, they gain the flexibility to explore new avenues. With more financial backing and a track record of success, these companies can invest in new areas and take calculated risks. Investors are often more supportive, as the firm has already proven itself in its primary market.

European tech start-ups are struggling to scale compared to their US counterparts due to a variety of factors. These include limited access to capital, fewer venture capital funds investing in European companies (both domestically and globally), and a preference among investors for safer assets such as banks and government bonds. Additionally, Europe’s relatively lower R&D spending further hampers the growth potential of start-ups, reducing their ability to innovate and compete on a global scale.

Here are some statistics that underscore Europe’s struggles with scaling up, and now is a crucial time to focus on these issues:

• The European Union has fewer than half the number of startups in the United States, and only one-fifth the number of scale-ups.
• By the time European scale-ups reach ten years of operation, they raise 50% less capital compared to their counterparts in San Francisco.
• In the European Union, more than 80% of scale-up deals involve a foreign lead or sole investor, compared to only 14% in San Francisco.
• 66% of the venture capital fund managers interviewed said there were insufficient financing opportunities for companies to scale up in Europe
• Venture capital investment in the EU has been only 0.03% of its annual gross domestic product (GDP), compared with about 0.19% in the United States
• Ten years after its establishment, EU scale-ups have raised, on average, 50% less capital than their US counterparts.

While the challenge of building successful tech scale-ups and global giants in Europe may seem daunting, heavy investment in innovation is the path forward. Europe can learn from the success of venture capital and technology scale-ups in the United States and implement the following strategies to revive its tech ecosystem and usher in an era of innovation:

The European government needs to bolster innovation hubs and incubators, as these firms act as intermediaries between startups and investors, supporting companies in their early stages of development. The European Union has seen some success in this area, particularly when incubators establish strong connections with the innovation activities of universities and research centers (such as PoliHub or KU Leuven Kick). However, these initiatives remain small and too fragmented.

Currently, the 27 countries in the EU face fragmented venture capital funding, with each country having its own financial norms, tax regulations, corporate governance rules, and stock exchanges. This creates regulatory, legal, and linguistic differences across countries. The European Investment Fund is already prioritising cross-border venture capital firms. To further support startups, the EU should focus on reducing these barriers, enabling easier access to capital throughout the region, and facilitating successful scaling of startups.

The outlook for scaling up in Europe appears challenging, and it may be some time before a global tech giant emerges from the region. Europe can benefit by studying the success of Silicon Valley in the US and implementing similar strategies to address the funding gap. Governments should consider becoming active investors in startups, providing both capital and support to help these companies grow. Innovation should be at the heart of government initiatives and tech startups. The success of US-based startups in scaling up and dominating the global market is a key factor behind the US becoming the world’s leading economy.

Nikolay Shestak is a partner at Zubr Capital